Bridging Pensions to Cover the Income Gap Prior to Retirement

Bridging pensions allow future pensioners to finance their early exit from the labour market while paying social security contributions voluntarily during the waiting period before entering the public pension scheme. Such bridging pensions are strongly related to other transfers from the welfare system (partial retirement, unemployment benefits, social benefits) which makes them less attractive. For the government budget bridging pensions result in a privately funded financial relief, as long as they are linked to forfeiting public transfer payments. The potential level of a bridging pension depends on expected consumption needs after leaving the labour force as well as on the net income prior to exiting the labour market. Consumption expenditures of pensioner households are some 5 to 15 percent below those of the working population. The average accumulated income gap amounted is between 9,900 € and 35,200 €, depending on the assumptions about the level of public transfers. Due to the skewed income distribution these figures may be much higher at the individual level.